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Screwier and Screwier

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So now Vonage is “demanding” that customers who agreed to buy shares in last week’s IPO pay up for the shares. “Demand” is such powerful word. “Demand and two-bucks will get you a subway ride.
Hold on. We’re getting ahead of ourselves. Flashback a couple of days.
As the world shuffled back into focus on Tuesday morning and haze of beer and nitrate-loaded Memorial Day hotdogs began to clear, we were hearing word that Vonage was thinking of unscrewing customers who bought shares in last week’s IPO and balked at paying for the shares as the price slid in the days that followed. Clearly Vonage was in a tough spot. It’s underwriters wouldn’t stand for being left holding the bag for shares ordered but never paid for, but Vonage also didn’t want the underwriters (or Vonage itself) to start suing Vonage customers. The trial system is not exactly the best way of building a loyal customer base.
Vonage’s creative solution was reportedly a plan to reimburse the underwriters for shares not paid for by customers.
What happened next after the jump.

This plan was greeted with, well, nothing short of derision. On CNBC’s Squawk Box, Joe Kernen pointed out that this seemed to be creating two classes of shareholders—the customer purchasers and every other investor who bought through more typical IPO channels. Could Vonage really decide to let one group of shareholders off the hook while all the other shareholders lost money?
Henry Blodget quite reasonably asked, "Where in the "Use of Proceeds" section of the IPO prospectus does it say, "A portion of the proceeds may be used to insure customers against IPO losses"?
The Peridot Capitalist and others voiced the concern that letting customer-shareholders off just wasn’t right in some metaphysical sense.

I don't care how desperate you are to keep your customers happy. If they refuse to pay for their stock, you go after them…When are individuals going to take responsibility for their actions?

When an argument tips into abstract principles, DealBreaker usually looks for the clearest path to the nearest open bar. There’s no arguing with principles like “individual responsibility” so we don’t like to get into arguments about them. But it seemed to make some good business sense that Vonage might not want to erase its customer base by mounting expensive lawsuits against it. If you were a shareholder, would you want Vonage suing its customers? Do you think this would improve or further deteriorate Vonage’s business prospects?
It always helps to have the numbers on these things. How many Vonage customers bought shares in the IPO? How many shares did they buy? These weren’t immediately available. Today Bloomberg reported that “about 10,000 of Vonage's 1.6 million customers participated in the program to buy IPO shares at $17 each” but that doesn’t tell us the total number of shares we’re talking about. So its still impossible to quantify what kind of hit Vonage would take.
Joe Keren's concerns are probably misplaced. What legal rule says Vonage can't buy the customer shares? This isn’t a tender offer, where an “all holders” rule might apply. Instead, it is Vonage reimbursing underwriter for unpaid shares, something that Vonage may well be required to do under its agreements with its underwriters (particularly if it doesn’t want its underwriters suing its customers).
But now we’re back to Vonage demanding the customers pay up. Probably a good idea, that. It’s a bit early to start telling people you’ll let them off the hook. Wouldn’t all 10,000 take that deal? When a wimpy promises to pay Tuesday for a hamburger today, you don't tell him on Monday that he shouldn't worry about it. The most likely outcome is that Vonage will continue to demand the customers pay. Some will and some won’t. Vonage will then make the underwriters whole for the unpaid shares, and hope this whole fiasco slips into the footnotes of quarterly statements.
Vonage Pushes Clients Who Bought IPO Shares to Pay Up [Bloomberg]